American court hearing recordings and interviews - Season 2. Episode 10. December 12, 2023. In re FTX Trading Ltd., et al., chapter 11 bankruptcy case number 22-11068, audio of hearing held in the FTX/Alameda et al. bankruptcy proceedings pending in Delaware, USA #crypto

Episode Date: December 16, 2023

--

Just remember why you make it. All right. Thank you. Thank you. Good morning, Your Honor. John Goodchild, Morgan Lewis and Bacchus here on behalf of the emergent debtor. Your Honor, we had three motions on for today, one of which, which was the exclusivity motion, was I believe we submitted a certificate of no objection to that.

not sure whether your honor desired a presentation on the extension of exclusivity. I don't think I've seen that, but if you have a COC, I'll take a look at it and we'll get that engine for you. The two other motions are contested. That is the motion for post-petition financing, which is docket 3024, and the motion for a protocol around payment of offshore firms, and that's docket 409. These motions fit together because they relate to the interplay between this court and this proceeding versus the Antiguan proceeding for the emergent debtor.

Your Honor, we have discussed with the United States trustee, which is the sole objective. Block-fyes' questions have been resolved. F.TX's questions have been resolved. We are in a situation in which the only objecting party is the United States Trustee. We have confer with the United States Trustee and have agreed that with the court's permission, we'll make a single record to support both of the motions. Yeah, that's fine. They're interrelated. They are interrelated, yes. Yes, Your Honor. To do that, Your Honor, we have in the courtroom, Ms. Angela Barkhouse, who is one of the Antiguan appointed, court-appointed liquidators of the emergent debtor.

So, Ms. Barkhaus, could you stand just let the court? That, I believe, will be the only live witness, Your Honor. In discussion with the U.S. trustee, we've decided that with the court's permission, we'll do very short openings. move to the presentation of Ms. Barkhouse's testimony, and then obviously if Your Honor desires argument after that, we can go that way. Is that all right with Your Honor? That's fine, thank you. All right. Well, with respect to the evidence, we have... Before we go any further, did you sign it? I see no one here from your side of the table. Your Honor, I think I did not. May I approach your honor? Approach, yes. I said to say, Your Honor.

Is there another sheet somewhere? Yeah. May I approach? Yes, thank you. Okay, go ahead. Your Honor, from my perspective, the evidence in support of both motions will consist of two declarations from Ms. Barkhouse. One is docket entry 3024-2, which was submitted along with the post-petition financing motion. And then we are also relying upon the first day declaration.

which is docket entry three in the emergent case. And Your Honor, recall that after the beginning of the emergent case, Your Honor entered a limited joint administration that changed all the emergent filing so that they appear on the FTX trading docket. The original first day declaration is on a separate emergent docket

in this docket entry number three. There were several exhibits attached to those declarations that we are submitting to be part of the rest. record, the liquidation order, which is an Antiguan court order, the liquidation order dated July 14, 23, which is Exhibit 1 to the Barkhouse Declaration at 3024. The summary of litigation conducted by Samuel Bankman-Fried in Antigua, which is Exhibit 2 to the Barthouse Declaration. The transcript of proceedings, which is the record of a judgment of the Antiguan court dated December 28, 2022, so about a year ago, that's Exhibit 3 to the Barcast Declaration.

The joint provisional liquidation order, which is the order that preceded the liquidation order at Exhibit A1. The joint provisional liquidation order is to say that dated December 5, 2022. That's exhibit B to the Barkhouse Declaration. As I said, the first day declaration of Angela Barkhouse, Docket 3 on the Emergent Docket, and then of course Your Honor, this Barthouse's testimony. Your Honor, that record once completed, we believe it will show that the post-petition financing is a sound exercise of the liquidator's business judgment and that a reasonable business person would make a similar decision under the circumstances.

We believe the evidence will show the debtor here faces unusual financing constraints given the seizure of the assets. And recall, Your Honor, the assets of the emergent debtor had been seized by the Department of Justice by order from January of 2023. The evidence will show the liquid errors have tested the lending market extensively and that no unsecured lending is available and that the only financing available is at high rates If at all. And you will see in the U.S. Trustee's objection, Your Honor, that one of the U.S. trustees' objections

is to the terms the rates associated with this loan. Well, there are high rates and there are outrageous rates. Yes, Your Honor. I understand that that is an issue, Your Honor. It is also true, Your Honor. We're talking about a $300,000 advance. The size of the advance will be a part of the evidentiary presentation. evidence will show that dip is necessary to keep critical offshore professionals working.

And we're really only talking here about King's Council, and that person is an independent contractor. Your Honor is probably familiar with how King's Council or Queen's Council before the unfortunate passing of Queen Elizabeth, how those folks are compensated, they're not like large law homes, and it is indeed created by the use of King's Council and the need for Kings Council. And at the end, we'll show that the pricing and the size are appropriate to the fact and circumstance. And that it is imperative to... You've finally broken loose from work.

Three friends, one tea time, and then the text. Honey, there's water in the basement. Not exactly how you pictured your Saturday. That's when you call us, Cincinnati Insurance. We always answer the call, because real protection means showing up, even when things are in the rough. Cincinnati Insurance. Let us make your bad day better. Find an agent at CINFIN.com.

Then, Sandbank imposed order after discussions with both F-TX and BlockFi. The change is clarified that the dip lien, if your honor grants, will be subordinate to any pre-existing interest. There's no priming lien component. There's no roll-up. There's no need to show adequate protection. With respect to the offshore professionals, the evidence will show the liquidators and the Antigua professionals are already operating under the oversight of the Antiguan court. These are all court-appointed firms.

The approval includes any approval of any payment. So no matter what happens with Your Honor in this proceeding, there is an Antiguan proceeding for the approval of any payment to any of these firms. If this isn't a 15, it's an 11. That is correct, Your Honor. You are right. The evidence will show that none of the Antiguan professionals have any role in the Chapter 11 case. The liquidators, Ms. Barkhouse, and Nishukler, who's not in the courtroom. They do have a role, but they act as officers of the Antiguan court

and further into the duties imposed by that court. And, Your Honor, I grant. It is an 11, I understand. At the end, we'll ask, Your Honor, to grant that motion because it will avoid costly due. application of effort. It will subject the professional activity to the scrutiny of the court best able to evaluate their activities, meaning the activities in the Antiguan litigation. It's consistent with precedent from other cross-border cases, and it is our view that neither

the liquidators nor the Antiguan firms, the offshore reforms, qualify within the definition of professional persons under 327. And the line of case is followed in this circuit with respect to that. Does Your Honor have any questions? No, thank you. Good morning, Your Honor. Linda Richendurfer from the Office of the United States Trustee. As you may have guessed, I have been chosen to try to fill the very big shoes of

Julia and Sarkesian upon her retirement. So this is my first time appearing in front of you in the FTX matters. But you'll be seeing me for days to come in different aspects of these cases. Your Honor, to be clear, the U.S. trustee agrees with the goal of the joint liquidators which is to keep the assets under control and to not allow them to become subject to the control of Samuel Bankman Free or the other 10% shareholder of emerging. We had to look at a couple of facts here. One point is that the assets are right now under the control quite frankly of the US Department of

Justice. They received in January and the shares were liquidated in September. No one is touching those assets until they go through the Department of Justice. And in light of the fact that Mr. Macman-Pried was found guilty and that the 10% shareholder of Emergent pled guilty, I don't think that those assets are leaving the control of the Department of Justice anytime soon. soon. The joint liquidators goal, they made the decision that to reach that goal, they needed to file this Chapter 11 case. And when they filed the case, they gained the protection of

the automatic set, sort of a belt and suspenders, I guess, if you will. Again, making it clear that actions to touch the assets had to go through this court. And in order to make use of the protection set forth in the bankruptcy code a debtor must as the quid pro quo also then comply with bankruptcy statutes and rules and relevant case law and that brings us first to dip your honor already made a remark about the interest rate I can't conceive of a case where it ever hit triple digits a percentage for the interest rate and the fact that it's for a small amount of money your honor almost makes it worse because we're talking about a dip lender who was the

pre-petition lender and already has approximately 11 million dollars on the line here and not quite clear what the interest rate is for that 11 million as you saw in our objection we tried to work out the interest rate by backing into what the numbers were that would be due on certain dates weren't successful with that. So we go from those interest rates that clearly, I don't believe, in any way, could be over 50%,

and probably weren't over 30%. And we go all of a sudden into, okay, $300,000 more, but we want 150% interest or 200% or 250% interest. I would also submit, Your Honor, that the current record, which may be expounded upon

before, Your Honor, today, does not explain to us what was done to shop this loan. All we have is a blanket statement. We don't know what was done. We do know, though, as noted in our objection, to the professionals motion, I'll call it, that the lender not only loaned money pre-petition,

that wants to loan $300,000, they are also now out there buying FTCS claims, and FTCS is one of the creditors of the margin. So we have a situation where we have a pre-petition lender and we have somebody who is a creditor of emergent saying to give you $300,000 to protect this estate, I want 200% interest or 150% interest. And the due dates just are way too soon because there is no other source of funding for this estate other than the funds that are in the hands of the U.S.

Department of Justice and there is no indication that that money is going to be released to emergent even partially in time to make those payments so we really are setting ourselves up for a situation where we're going to be looking at the higher interest rates plus the default rate of 5% which is almost that negligible in the grand scheme of things the other concern your honor is is that this is the foot in the door and we may see the debtor come back. We don't want to see this dip loan expanded upon in the future because we will tell you and it will come out during the evidence that

the professionals in Antigua are owed far more than $300,000. They are owed at least $3 million. I'm going to ask the witness different questions about the MORs to try to figure out exactly how much they're all owed, but it's at least $3 million. dollars so it's unclear why this $300,000 payment is so necessary at this point the motion did mention the appeal though the appeal was already argued the end of October and we'll have to hear from this Barkhouse as to what the current status is but it's my understanding was argued the end of October as was stated in the dip motion moving on to the professional motion.

As Your Honor also noted, this is Chapter 11. It's not a Chapter 15. In every single one of the debtors, it represented that it was going to work on a cross-border insolvency protocol. And in fact, there were efforts made during the summertime. And there is a draft that's pretty much complete, but the debtors never moved forward with that. And it's one thing to say, okay, this is the given tape that's going to be in those cross-border insolvency protocol that's going to be abided by by both courts and it's another thing to come to this court and say okay we are giving your honor what we see in the cross-quarter cases but they're doing it out of context they lift it one

paragraph out of the protocol I think it's almost worked or word from the one from the one in Nortel it looked one paragraph out about the Antiguan court overseeing the fees and the engagements in this case I'm sorry in the Antiguan court proceedings. The other way in which these things are often handled is 327-8. Been involved in many cases where the debtor had to initiate foreign proceedings, didn't have a 15 but needed representation, and came to the court with 327 motions for retention of professionals in the foreign jurisdiction. Neither of those processes have been followed here and said your honor is being asked to

approve $300,000. There's no budget. We're told the money's going to go straight to these professionals and we're not going to have any insight. There's no transparency into how that money is being spent. So your honor is proving funds, flow right out the door and this court won't have oversight into how they are processed, who gets them and where they go. And that is part of the concern we have, Your Honor. To be clear again, The U.S. trustee does not in any way question the goals of the joint liquidators. We don't question the notion that they need counsel and professionals to represent them in those proceedings. What we do is we question the process by which they are trying to gain approval of further loans

and gain this court's comfort order, basically, to say that the Antiguan court, whatever that process is, and we'll question Ms. Barkhouse about that. Whatever that process is, is sufficient, and that Your Honor doesn't need to worry about where money that is becoming a debt of this estate. This court has no control over where it goes, no oversight into where it goes. Unless Your Honor has any questions,

I'll jump into the, I guess you have an entry portion. Thank you, no question for this time. May I proceed your honor? Yes, go ahead. Before we call Ms. Barkhouse, I'd like to move for the admission of the documentary exhibits that I mentioned. Is there any objection? No, Your Honor. No, Your Honor.

No, Your Honor. No. No. Ms. Markhouse, please come forward. Take the stand and remain standing for the oath. Please raise your right hand. Please state your full name and spell your last name for the court record, please. Angela Jessica Barkhouse, B-A-R-K-H-O-U-S-E.

Do you affirm that you tell the truth, the whole truth, and none but the truth, the best knowledge and abilities? I do. You may be seated, Your Honor. Good morning, Ms. Barkhouse. Good morning. Could you introduce yourself to the court

and let the court know who you are and what you do, please? Absolutely. I am an insolvency. You move the microphone for you. Sorry. I am an insolvency practitioner, an asset recovery expert. I deal with the investigation

and recovery of financial losses, normally where there has been financial crime or misconduct or misfeasance. Some of my cases that I can highlight are the investigation of the former president of the Republic of Maldives for embezzlement of funds and also as an expert for the United Nations Development Programme, investigating corruption and the closure of cases for the Truth and Reconciliation Commission for Tunisia after Ben Ali and also I'm currently investigating and recovering losses for the one MDB, one Malaysia financial scandal, which is 7.65

believe loss. Most of my cases involve elements of cross-border. Let's wait until we have another question. We're going beyond the scope of the question. Thank you. Ms. Barkhouse, you mentioned you were an expert in asset recovery abroad. Could you give the court a sense of whether you received any designations, do you have training, experience in that?

region? Sure. So I am a qualified accountant, so I'm a fellow of the Association of Certified Chartered Accountants in the UK. I have a degree in applied accounting. I also have a master's in criminal justice policy. I'm a certified fraud examiner from the ACFE in the United States, and I am qualified to act as insolvency practitioner in Cayman Islands, BVI, I'm appointed in Antigua, DIA, DIAFC, and in Samoa. When did you first become a licensed insolvency practitioner in any jurisdiction? In the British Virgin Islands in 2017, was appointed personally over cases in this obviously.

In this case, in the emergent case, you and Ms. Shukla are appointed as joint liquidators, right? Yes. What was the process by which you and Ms. Shukla were appointed by the Antibian court? So the petitioning creditor, who in this case was Ben Shimon, had sought the protection of the Antiguan court to have a receivership placed over the assets of emergent and of Sandbank and Freed. The petitioning creditor is able to put forward nominated individuals, and he asked for us to be put forward based on our expertise and our experience in cross-border asset recovery. That petition was put forward to the court and that was granted by the court.

And when were you appointed as provisional liquidation? of emergency. Provisional liquidator of emergent I was appointed on the 5th December 2022. Just for context, as of December 5 of 2022, had emergence assets been seized by the Department of Justice? No. In fact, at the time of the receivership order, which was on the 18th of November, FTX was falling over and there was Ben Shimon who had understood that there had funds that had gone into Emergent, had information that Sandbanking Fried was trying to sell the Robin Hood assets at a significant discount and he was extremely worried that these assets were going to be dissipated and liquidated without any control. That's why he petitioned the Antiguan courts to take control of those assets.

When we then tried to seek information from San Bramon-Freet himself, which he did. respond to, we then petitioned for the winding up of Emergent and that happened on the 5th of December. Has the Antiguan Court entered a winding up order for Emergent? Yes, on the 23rd March. Of this year? Of this year. In the Emergent case, would you give the Court a sense of what your duties are as a court appointed liquidator? As a court appointed liquidator, it has our duty to investigate what happened that led to the

the insolvency or to the financial distress of a company. And particularly where there is allegations of financial wrongdoing, we are asked to find out the provenance of funds and the destination of funds they're on. We are also expected to preserve those assets for the benefit of creditors, whoever they may be. You mentioned that part of those duties was a kind of investigation into the events leading up to the liquidation and sources and uses of funds. Did I hear you right? Yes. Did you do that in this case?

We did. And more specifically so, after the stipulation agreement was entered into, we were able then to obtain production from FTCX and BlockFi, and that allowed us to identify the provenance of funds into Emergent, which was not, as Sam Banton-Fried had said in his affidavit, was as a result of commissory notes. In fact, that was very inaccurate. You had mentioned the stipulation, make sure that we clarify. I believe the court is going to remember this stipulation, but what stipulation are you talking about?

So the stipulation agreement that the parties block five and FTX and emergent would not enter into litigation to determine the ownership of the assets of emergent, which at no point had we tried to do. And you referred to a production of documents or information related to that stipulation. How does the stipulation relate to your ability to get information? It allowed us to obtain information from FTCS because we had been seeking for some time to obtain information from them and we were unable to do so directly.

And did you receive information from that yet? We did. We received it over a period of time, probably around six months in total, over three different charges. Have you analyzed that at all? We have. On each production stage, we have to ask for more information because of production wasn't necessarily complete. And that allowed us to get to the point where we are at today, where we have identified

where the provenance of funds came from, and that in fact they may be even more creditors than currently we know of. You had mentioned the involvement of Sam Bankman-Fried and how the result of your investigation differs from some things that Sam Bankman-Fried has said. Could you explain what Sam Bankman-Fried has been doing, if anything, while you have been doing what you need to do as emergence liquidated? From the very outset, we have dealt with no less than 15 applications by Sam-Bankman-Fried in Antigua to stay.

strike out or to appeal against the decisions to appoint us as receivers or liquidators. He's agitated the Antiguan Court to get us to get the Court to turn over the company back to Sandbank and Freed and the Court has agreed with us that it must remain within independent control. The applications in question, did you hire counsel to represent you in connection with those applications? We had no choice to. You need to have counsel to advocate in the courts in Antigua. There are only two Kings Council that are admitted in Antigua,

and we had one of those very luckily, who has been extremely valuable to us. Why was it necessary to hire Kings Council in order to do that litigation in Antigua? Quite frankly, in Antigua, everybody was taken up already. You had Stand Bankment Freedom with his lawyers, you had the DOJ with their lawyers, BlockFi, you had FTCDivital, you had FDX. The remaining legal counsel was very limited, and we were extremely lucky to have found David Joseph.

You were in the courtroom during the opening statements, right? Counsel for the U.S. trustee asked some questions or raised some questions regarding the total amount of fees that are owed to the the non-U.S. law firms and to your firm, Quantuma. Do you recall that she said something like that? Yes, I did. All right. Just so we can jump to that for a second, could you give the court a sense of the different professional firms that we're talking about here, not Morgan Lewis, which is the U.S. counsel, but the different professional firms and how much each of those professional firms is owed currently. Is that including pre-petition or just post-petition? Well, perhaps I should ask a different question. With respect to any of these professional

funds, are there unpaid amounts that relate to periods of time before this bankruptcy petition was filed? No, so all of the individuals were paid by the funding agreement. Prior to the Chapter 11, because we did not want to end up with an unsecured creditor basis for these individuals who have served a very good purpose and have preserved those assets prior to the DOJ, seizing those assets on the 6th of January, which I would remind is at least 6 to 7 weeks after Sanbank and Freed had tried to sell those assets. So we had engaged with Foreign Council and Teagan Council to support the liquidators in defending against SBF's actions against us.

All right, so let's take those firms in order. By my count there are four. your honor listed in the motion and in the affidavits that have already been admitted. Let's take the law firm for B. Yes. Who are they and what do they do? So they are an offshore law firm that operate in multiple offshore jurisdictions such as the Cayman Islands and in the BVI.

They were supporting us in the drafting of the applications in response to SBF and also in response to Block 5 actually. And were supporting us with submissions to the port in defense of those actions. in support of the winding up of the application of the company in Antigua following the receipts of order. Approximately how much is Forbes Hare owed for its work since the Emergent Chapter 11 has been filed? Since the Emergent Chapter 11, they are owed 1.013 million. Lake and Kentish, who are they and what do they do?

So they are Antiguan local council. So they are experts in local Antiguan and corporation law, and they were in a local Antiguan corporation and they were enabling us to navigate the International Business Corporations Act in relation to the winding up of the death of the company. How much is Lake and Tentish owed since the Emergent Chapter 11 was filed? Six to 2000. Essex Court Chambers, that's David Joseph, right? Yes, and his junior council, Alex Reitha-Pos. What is the relationship between those individuals, the King's Council and the Junior, on the one hand,

And Essex Court, on the other hand, could you explain to the court? So Essex Court is a set of chambers, which a number of individual practitioners who are barristers will form part of that court. They have a clerk which takes instructions for them, normally from solicitors and clients to enable them to appear in front of court. So in certain jurisdictions, the solicitors or the local council cannot appear in front of the judge. It has to be a council of a sort. Is Essex Court a law firm? No, it's a set of chambers at which is just purely barristers. Mr. Joseph, is Mr. Joseph his own law firm?

I'm trying to get to the, what is the economic unit? He is a sole practitioner. So he, the chambers can be useful for marketing purposes, for being able to rely on other duty, new council or senior council. But he is very much a sole practitioner. So he takes his own cases and he can decide whether to take those cases or not. He doesn't have to. As in he can take these cases, we instructs him to do so.

And he took on this case and he agreed to work with us on that. Now how does the junior get paid? The same way as Kings Council. So he's also a sole practitioner. He's ultimately, I suppose, if you're looking at ambition and progress, he would like to become Kings Council himself one day. Now, in our papers, we refer to an amount due to the Essex Court chambers. And by doing that, do you mean to say that's the amount owed to David Joseph

plus the amount owed to the junior? Yes. Looking at that total, Essex Court, the two individual practitioners, what is the amount that is unpaid since the Emergent Chapter 11 as well? 1.18 million. You had described the role of King's Council in the Antean, the beginning. Let me ask a clarifying question first. When you talk about the amounts owed 1.18 million, is that in pounds or in dollars?

That's in dollars. Okay, thank you. Going back to Essex Court and Kings Council, can you explain to the Court why it is that the Essex Court lawyers are owed a little over a million dollars and the Antiguan local council are owed about $65,000? Because we only use the local Antiguan Council for navigating local law. So what King's Council are doing is they are presenting to the court the merits of the case, the merits of why that companies should be wound up or why, as San Bernard Misfreed's efforts

to overturn those orders should be made. But local council only deal with the specifics of procedure, local procedure in the court and local law. So I want to go back just a little bit. Before we go to Quantum, which is the last time, I want to go back to something that came up right at the beginning of the . And the assets of the emergence have been seized

by the Department of Justice, right? Yes. And that seizure took place in January of 2023, right? Yes. It might be natural for anyone to ask, including the United States trustee, why it is so important for you and these offshore professionals to fight so over.

hard against the litigation that Sam Bankland-Free has been prosecuted? In other words, why does it matter now that the assets have been seized? I think you have to take that in two parts, which is up until the Chapter 11 petition and thereafter. Sam Bankman-Fried fought very hard, even after the OJ has seized those assets, because once you end up into a position where if we were just dealing with Antigua and he was trying to get those orders overturned, he would have then be made. in control of those companies and those assets.

And there is an argument as to what he may have wanted to do with those, whether it was for use for plea bargaining, whether it was used for other means. But post the petition, it was more about still returning over the company, but to him, even though, as I said, the DOJ had seized those, we spoke to the DOJ about this in the call that we had with them, and we said, well, why would he want to do this? Because they were already seized. But there is clearly a personal element to this, a personal benefit to him to be able to regain control of that company.

And you can speculate on that, but my personal belief is that it allows him to position himself in a better opportunity. Also, remember at that time, he had not been charged. He had been charged, but he hadn't been convicted. And now, of course, Sam Bankruptry has been convicted. The assets are still seized. Do you have a view as to how the emergent case resolves vis-à-vis the seized assets? I would like to think that we could have engagement with the DOJ and with the creditors as to exactly how the provenance of funds came into emergent and who the creditors are

and where the proportion of distribution of assets should be made. Have you had, you or you are professionals have had any conversation with the DOJ about resolving resolving the matter in that way we have tried and understandably the DOJ said that they were dealing with the criminal proceedings that they would not be able to deal with us until after the trial had taken place and concluded do you have an understanding of when the DOJ has said it is going to engage with respect to resolving things of the merger they have said that they will not be able to engage with us until after the sentencing of Sandbank and Freed which is

around the end of March next year. Have they offered an explanation for why? I believe it's because the second trial is due in March, and they want to wait the conclusion of that also. Have you had any conversation with representatives of FTX regarding how to resolve the relationship between immersion and FDX? I have tried. To say I have tried is an understatement.

We have believed that they're could could be certainly in relation to the funding, and I'm going to step away from this, certainly in relation to the funding, we felt that we would be able to come out of that funding agreement much, much, much sooner if FTS could engage with us as to how we could deal with any further funding of the actions against SBF. But we could not get any engagement from them on that front. What about BlockFi? Do you have any conversation with BlockFi? We have not had engagement with BlockFi. They are looking to engage with us now. At the beginning, they were extremely hostile towards us, but that was during the Antiguan

proceedings where they were trying to prevent us from coming into a chapter 11 process. Let me go back to the professionals. There's one entity that we hadn't talked about, and that's Quantuma. That's your firm. Yes. What role is Quantuma, the firm playing in these proceedings? So as independent court fiduciaries who are appointed by the court, we take our appointments personally in our own name, but we have, as do any other firms, as does A&M, who acts with

FDX, as does EY, who acts with BlockFi, as do PWC, who acts with FTX Digital. We are all under the umbrella of bigger companies that enable us to use their infrastructure such as data security, IT, insurances, HR, etc., etc. So even though we've taken to the umbrella take our appointments in our own name, it is actually the firm that supports the infrastructure around that. And with respect to infrastructure. Does Emergent have any employees, any infrastructure of its own? No, it has absolutely none.

Certainly none that we've identified. It was just a shell company. So Quantum is providing all of that support to you that you might otherwise, in a different case, get from the employees of a debtor company. Yes, so if we were looking to seek information, we have to have to have taken. that information ourselves. There is certainly nobody that we were able to obtain information from independently that was willing to do so. Going back to Quantuma, how much is Quantum owed for work it is performed since the emergent Chapter 11 began? So we are owed since

the Chapter 11 just in the Antibian proceedings or including the Chapter 11? I want to make sure the court is informed totally. So if you have a breakdown, then that's a I can split that out. So in the Chapter 11 proceedings, which has included engaging with the DOJ in relation to the Robin Hood reacquisition of the shares, engaging in the stipulation agreement, et cetera, et cetera, we owe $457,000 in relation to the Antiguan proceedings itself, 9,000 to 4,000. I'm doing the math in my head, which is always unreliable, especially as it relates to me. That sounds like we've got a total unpaid amount in the $2.6, $2.7 million range. Does that sound right?

Yes, so yes, that's right. So two point, in relation to the Antiguan proceedings, 2.2 million only. I said doing math is unreliable. Let's talk about the funding a little bit. If we have a $2.2 million unpaid amount in relation to the Antiguan proceedings, why is the post-petition funding that you're seeking approval for only three years? $300,000 US. There is a recognition that the pre-petition funding agreement, the rates within that are not

part of all. But if we were to proceed in Antigua and defend against Sandbank-Reed, we had to pay those sole practitioners for the barristers. And that was for the Court of Appeal hearing, and that was 300,000 US. It was imperative that we did that. Why was that appeal so important? Because if we did not appear in the Court of Appeal hearing, then by default, Stan Backman-Fried and his lawyers would have won a summary judgment to have overturned all of the liquidation

and therefore all of the actions prior to that. You mean everything that you have done? Everything that we have done. Would that have put Sandbankman-Free in control of Emergent in general? Yes, he would be the court. Well, we stand in the choose of the company, so we are the corporate record holder for Emergent. So we stand or sit at the table with the DOJ and FGX and BlockFying any other creditors that may now come forward. And we provide that independent, non-hostile view of where the distribution should go.

If Sam Back McPread was to take control of that company, he would have a very different viewpoint to how I would. Meaning what as it relates to the DOJ and the discussions that come? Well, I think it's more important in relation to the creditors themselves because Sam Backman-Fried in relation to the DOJ, he could negotiate with the DOJ. They could forfeit these assets, they could go into a victim fund and they could be distributed however the OJ see fit. However, there was going to be extended litigation between BlockFi and FTCX and San Backman Fried, I believe, in relation to exactly who were the creditors of that.

As we know, the pledge agreement that took place between BlockFi and emergent, purportedly, have knocked out FTCX as creditors of those assets. Equally, if that block-fied, if the pledge was considered invalid, through the avoidance procedures, then FTCS creditors would be considered to be beneficent of those assets. There is also a view here that you, again, coming back to the provenance and the destination of funds, we have identified that there are funds that are self-made within the emergence, that it created its own profit, we also identified that there may have been FTCS digital funds that went to. into there. We have identified that there could be accreditor with Voyager. If FTCX have a

avoidance with Voyager and it goes other way, Voyager could then become a creditor and then you end up with a whole mess of trying to work out exactly who should benefit from those assets. And when you explained all of that, do you attach significance to all of those findings as it relates to what might happen in the future with respect to emergent and FTX and the discussions relating to how to resolve everything. Your Honor, it goes far beyond, I think the subject matter of the DIP and the professionals see the relevance of this and an awful lot of it has been stood up to interject. But if we're going to hear an awful lot about what might happen in the future, I just question the

other than it. Well, it's also spikes a list. believe that the person who decided to engage counsel to expend the funds and to take the actions that are being criticized in the objection should have the opportunity to explain why she's done what she's done. How about to that extent? Looking at, well, let me go back to the question I asked, the explanation you gave with respect to the findings that derived from your investigation once you got information

of the NPRX. Do you attach significance to those as it relates to the need to continue to fight with Sandbank and Freed Over Control of the Company? Absolutely. I think it's critical to have an independent court appointed by D.S. To be the record holder and to stand in the shoes of the company when they're dealing with third parties in the DOJ. Going back to the unpaid amounts, is there any funding available to an emergent during its Chapter 11 period other than, then the post-petition financing that we're seeking for it? We had sought to obtain funding from other parties. We entered into a process of due diligence and entered into NDAs with other parties.

They did their due diligence and looked at what they would offer, quite frankly, one of them was even higher. And the other withdrew from the delivery process sort of a few weeks in. Let me back up a step. You said you went out and consulted with other potential lenders. Approximately how many other potential lenders did you approach about the possibility of providing funding during the pendency of the emergent chapter 11? We spoke to four funders, including Folcom itself, and entities. and entered into NDAs with two.

How did you select the four potential funders other than Fulcrum in order to know whom to approach? One was through recommendation. The other is through a well-known international funder, litigation funder, who has done a lot of litigation funding in the US, incredibly. And then the third is someone that I have worked with on multiple other cases previously, and I approach them directly. I understand that you entered into two non-disclosure agreements, so we can't disclose the names of two of the potential funders there.

But can you give the court a sense of the types of institutions that you approached? So these are institutions that have been funding litigation and in pecuniary situations and and Solace and matters for very many years. They are very well known in the market. They are not new entrants into the market. They have something like one of them has $1.8 billion under asset management in terms of asset cases, contingent asset cases.

The other, I think, is even higher than that. And Folkham itself, obviously, has interest in other cases too. When you thought about what institutions to approach, Did you consider that there are different parts of the lending market, you have asset-based lenders and you have traditional debtor and possession lenders and you have other kinds of lenders? Did you select a particular facet of the marketplace that you thought was appropriate for this case?

We did. We looked at debtor and possession financing through specific firm. And another one was, as I said, more institutionally based, but they, under asset management. But their investment committee is based of lawyers. So they have all this experience previously, so they know exactly what they're looking into and what they're prepared to invest, or deploy and capital into.

Did you get any feedback from any of those potential lenders that you approached regarding their willingness to lend to emergent at all? The big issue, quite frankly, is the fact that DOJ has CESA, there is no much less certainty as to whether or not there would be any return for them. Hence why the pricing was so high, and we could not find any of the better deal. Did you ask those market participants about whether they would lend to emerge on an unsecured basis? They would not do that. In the end, none of the potential funding sources was willing to...

Is that right? None of them were viable. And this was prior to, just to give some clarification, this was prior to the Court of Appeal hearing where we had actually sought to get Folk and paid out and to find a better deal in terms of pricing. And then the Court of Appeal hearing was coming up and then that's why this dip motion is in place in relation to the $300,000. But as I said, we had tried to sort financing prior to that this motion.

Looking at the professionals that we touched on, Forbes Hare, Lake and Tentish, Essex Court, let's stay with the law firms for a moment, those three law firms. Have any of those law firms performed any services related to the administration of this Chapter 11? No, absolutely not. And with respect to Quantuma, I think you explained that some of the services of Quantuma have related to the administration of the case, and some have not. Yes. I want to go back to the size of the proposed financing just for a moment. I had asked you earlier about why $300,000.

But I want to come back to that question a little bit. Now that the appeal has been argued, why is it important for Emergent to obtain this amount of post-petition financing when there's so much more that is unpaid to all of the professionals, including Morgan Lewis, which we haven't even talked about? I think it's critical because as we've noted earlier, they are sole practitioners. They don't have, they're not paid a salary, they do not have the comfort of huge institutions to be able to back them. And they have the ability to take other cases, quite frankly, and we needed them. They have performed some work for us, but this 300K was significant because of the Court of Appeal hearing,

and as I said, it would have unwound everything afterwards. We still don't have judgment. It still could be that we need them, and it would be very, very bad faith not to be able to provide them with at least the quarter of what they have dealt with so far in order to get to this position. Do you have an understanding of why the lawyers from Essex Court went forward and continued to argue the appeal, notwithstanding the fact that they didn't receive the amount of money of post-petition financing that we're talking about today? Because we all feel very, very strongly that this is a point of principle, we are very, very certain that, and as was the judge at the time, that this company should not be handed into the reins of any of the interested or hostile creditors or to Sam Bachman Fruit himself.

When it came to this particular proposed financing of roughly $300,000 U.S., why did you select fulcrum to provide that money? because, as I said earlier, we had looked at trying to obtain financing from other institutions in the market who were not willing to engage with us in substance again. And quite frankly, because this is 300,000, and we could have expended a lot of time and energy in dealing with new financing options where they would have to enter into the due diligence process, we would have to enter into NDAs. That would cost more than the 300K itself, I think.

Did you attempt to negotiate with Ulfram regarding the terms under which they would lend to 300,000? Yes. Tell the court about how those negotiations went. Well, they were very concerned because of the situation that they have been put in in relation to their pre-petition financing. They absolutely understood the necessity of being able to enter into the court. of appeal and to be able to defend against those actions. And so also as a point of principle, they agree that it was necessary and so they would fund

that extra amount, but they were not willing to fund us any further at that point in relation to any other fees. Do you have an understanding of whether fulcrum is, would be willing to extend any more credit beyond the 300 that we're talking about today? I don't think that would be a possibility, no. Did you attempt to negotiate with Falkham regarding the amount of the interest rate in this $300,000 advance? Yes, and on this occasion it was not agreed. However, we have discussed whether there is a way to negotiate the pre-petition financing going forward.

And what is the status of those discussions? We are still in discussions at the moment. This facility, the $300,000 facility under consideration, day. It has a maturity in a, oh, just about four months. Yeah. Yeah. Was there conversation with Fulcrum regarding the selection of the maturity date? We did. At the time, it was based around the DOJ correspondence with us that stated that we would be in a position to engage with them after Sandbank-McPree's sentencing, which was at the end of March.

So we gave the additional month so that we could have some time to deal with the DOJ. Most of this conversation so far has been about activity in Antigua, and yet here we are before the United States Court. Why was it important to you to file a motion before Judge Dorsey to seek approval of this plan? We wanted to complete transparency. We wanted the approval and the protection of the U.S. Court to be able to do that. We fully understand why we filed the Chapter 11 petition, which was to obtain protection

of the U.S. Bankruptcy Court, particularly against hostile creditors. And that's what we were seeking here today, is full transparency and new assistance. Coming back with Fulcum just for a moment, have you conducted personal conversation with Fulcum around this particular advance? Yes. Yes. And did you, in the course of those conversations, did you reach any view regarding why Fulcrum was willing to extend this, this advance?

As touched upon earlier, it was really a point of principle. I think they really understood that our hands would be tied if we did not enter into the Court of Appeal hearing. It was very much a me seeking their assistance and they were willing to provide it. But there was some serious discussion about whether they should, but thankfully they did. There is some concern raised here regarding whether Fulcrum is proceeding in good faith given the terms of the loan, the short maturity and the high interest rate. Have you reached a view regarding whether Balkan is proceeding in good faith?

I do believe they're proceeding in good faith. Why do you believe that? I think that they are, as I said, it's a point of integrity and principle in relation to the basis of these proceedings and why we need King's Council. And I also believe that we do feel that we will be able to engage with creditors and DOJ in due course as to the distribution of those assets. And I do feel that Falkram are willing to negotiate on their pricing as a result of that. A moment, Your Honor.

Ms. Barkas, we talked earlier about the appointment you received from the Antiguan court. The law firms, were the law firms appointed by the court directly in Antigua? No. Were they appointed by you? They were appointed by us, yes. When it comes time for the Antiguan tenets, to be paid. Is there a process under in Antigua regarding the approval of the expenditure to make the payments? Yes.

Can you tell the court what that's what that entailed? Absolutely. The Antiguan court is part of the Eastern Caribbean courts and all of those courts as most jurisdictions do. When you are an independent court fiduciary and you're an insolvency practitioner, appointed by the court in a situation such like this, you are required to provide your, um, application for fees to the court for the court to approve. So needless to say, it is highly examined. We run through all of the fees, make sure that they are of value and that they are accurate. And we then submit the fee application to the Antiguan court, and the judge will review those, that fee application determined for the him or herself, whether they are reasonable,

and whether they have been occurred in the due course of the liquidation itself. So I want to break down those steps just for a moment. The bills of the law firms, do they go to you in the first instance? They come to us in the first instance and we also supply that as part of our fee application to the court as supporting evidence of what has been dealt with within the liquidation. When you receive the bills from the law firms, do you review them for reasonable? Absolutely. Why do you do that?

Because of principle, because of integrity. I have absolutely cut fees down before from other law firms. I will not entertain any excessive billing, and I have a credibility reputation to uphold, so I put that in front of the court. Then when it comes time for the application to be made to the Antiguan court, are you the applicant there, or is each of the firms an applicant separately? We are the applicant. What do you have to show to the Antiguan court in order to obtain the approval?

Where the fees are being paid out the assets of the company, the court wants to see that those fees are being paid in a proper manner and for the right reasons. So we have to show exactly what we've done. We have categories and subcategories of work streams. So we will look at administration and planning. We will look at strategy. We will deal with legal, investigation. There will be subcodes if there are specific proceedings in place.

For example, the Antiguan Court and Appeal proceedings. We have a subcode for the 456. proceeding, which is the receivership, and then the 480, which is the liquidation, and also for the Chapter 11 work stream. So we have a complete set of data, which we then collate and set out to the court, and they are able to remove that in court. And you refer to categories and collating. Do you exhibit the actual bills from the law firms to the court? Yes.

Is there an additional analysis that you perform, that then is all the law. also provided to the court or is it just the provision of the bills to the court? We will submit to the court that we believe that the fees are properly incurred. Thank you. I have nothing further. Okay. Just so the parties are aware, I have to attend to something at 1130 that's probably going to take about an hour, and then I have a two o'clock hearing. So the plan is going to be, we'll break right before 1130, we'll come back at one.

We'll go from one till two, and then if we need to, we'll go. go that the two o'clock hearing I'm hoping won't last very long and then we'll pick up after that hearing miss Parkhouse as we've met before my name is Linda Richendurfer I'm attorney from the office of the United States trustee and I do have some questions for you I'm going to go a little out of order at first because I want to I have some follow-up questions to things that as you were testifying about them and then I'll turn to some of the other documents connected with this case You were just going through the process of how the joint liquidators submit this application

to the Antigman Court and what you do and looking at the fees and then how you pass on the information. Have you filed any of these applications yet with the Antigman Court? No, we haven't not yet. Okay. And why is that you haven't filed any yet? We are not due to. We have had significant dealings with obviously SBF and

various different applications in place at the moment. We do have a hearing for directions very shortly that we are hoping will come out of the Court of Appeal judgment and then at that point we'll be looking to submit a fee application even when we are able to determine that we are able to get our fees paid out of the assets of the company. That will be decided upon by the DOJ and or perhaps FTCS and other creditors. So if I follow that correctly, let me know if I don't have this right. not going to file an application regarding fees until you get things worked out with the DOJ

and there are assets that come back to emergent? Yes, unfortunately, sometimes in these situations, it's obviously practitioners don't get paid and it's vastly unfair when they're dealing with principles of legal justice, but unfortunately that's the way it goes. The issue is that you cannot pay assets out of the company if it's been seized by the DOJ, and that's why we're here to ask for the DIPMotion financing, so that we're we can actually obtain some funds so that we can proceed with the Court of Appeal judgment post thereafter.

In some of them, I should say, in all of them, in all of the monthly operating reports that have been filed for this data, there is a reference to a retainer being held by professionals in connection with the Antigua matter. Where did those funds come from? They came from the pre-petition financing. And I believe it's around $890,000. No, it's about a million. About a million.

Okay. And I'm not including in that the retainer that was initially held by Morgan Lewis. Ah, right, okay. Yes, you're right, so it's about $700,000. I'm sorry, could you repeat that again? So there was the retainers held. We had a proposed retainer of 1.5 for Forteare, which is held in trust.

and then we have 1 million of retainers paid. Not in, sorry, 700,000, not including morbid limit. What was the first rekindle you were talking about or the first money you said was health and trust? So we, for the Forbes Hare fees that were billed or rather raised for us, we sought a, we sought to have their fees reduced, which, as I was saying, so I will look at fees and I'll decide whether or not they're reasonable,

or whether they deal with other things. So they put forward a 1.6 bill. We propose 1.5. And so actually the retainers that are held in total of 700,000. Okay. And so that relates to you getting a reduction of their bill before any applications are filed with the Antiguan courts, correct?

Absolutely, yes. The amounts that you gave us, when you're being questioned by counsel, as to what is owed to the four Antiguan Antiguan professionals, I'll call them. Those were just for amounts that were accrued after the filing of the US Chapter 11 petition, correct? Yes, so because of the fact that we were filing

into the US bankruptcy court, there are, of course, expected administrative costs to be dealt with within the bankruptcy, and so we had sought small retainers at that point in time to be able to deal with the US court bankruptcy. What we were not expected, was to have so many actions against this by SBF.

So how much, if anything, is still owed to these professionals with respect to work that they perform prior to the filing of the US bankruptcy court, with filing the US bankruptcy case, excuse me. So they were, they were paid for all of the work they had done prior to the Chapter 11 petition. So the retainers were for everything post the Chapter 11 petition to deal with just purely administrative costs of dealing with the bankruptcy and dealing with persons such as yourself. So I thought that you had said that you had not yet made any applications to the Antiguan Court regarding payment of the professionals. No, I haven't.

Are you agreeing with what I just said that you haven't made any applications? So we made an application for funding in relation to the fees that had been incurred. We haven't made an application to the court for fees to be paid in the sense that we got out of the asset for the company. Remember, the fees have been paid by a funder, not by the assets of the company. So we sought an application for the court to approve a funder to pay for the fees for those individuals. We haven't gone back to the court and asked for a fee to be paid out of the assets of the company. That's why the funder is in a position of risk, because ultimately the court decides no, then the funder has lost out their investment or their deployment of capital,

although the lawyers or the individuals up until that point would have been paid, but there may well be negotiations after that. We would still have to go to the court and have our fees approved. Okay, so the fees that were paid prior to the filing of the Chapter 11 petition have not yet been reviewed by the Antigran Court? No, not by the Antiguan Court, no. Okay. And what was the total of what was paid?

So 3.3, 3.4 million, so 4.2 million was paid. But that included the retainers. Okay. And I saw information in connection with your dip motion that the pre-petition debt owed to full firm is that $11 million. Do I have that correct? So what we have currently is interest currently due of $8 million yet. So, as I had discussed, we absolutely were convinced, obviously as it appeared incorrectly, that we were going to be negotiating with FTCS to pay out Falkfram very soon after,

so the interest wouldn't have included in the way that it had. We also thought that we would be able to deal with a DOJ, and perhaps deal with a release of some of those company assets, to deal with the pre-petition financing and the cost and curtailed. We hadn't been able to do that, and so unfortunately the interest has accrued, yes. So let me ask this question differently then. How much in principle did the joint liquidators borrow prior to the petition date? So 4.2 million was the principal.

And on top of that, as of today, an $8 million in interest has accrued on top of the $4.2 million in principal? principal? Yeah. And what is the interest rate on the pre-petition debt? So it's 2.5 times. So it's 250%? Yeah. And did you do any shopping before you entered into that credit agreement? Yes, we did. And how many firms did you speak to regarding that? We spoke to three firms with substantive discussions and one who was vaguely interested that then was required. Were those the same firms you spoke to when you needed the 300,000? Not different firms. One of them was the same, actually.

Was there one in addition to Polkrum that was the same? Yes. You talk someone about your conversations with Fulcrum. Who do you deal with primarily at Fulcrum? So if I'm allowed to say, individual names I deal with Stuart King, Daniel Shepard, and Matthew Hamilton. I want to ask a clarifying question here. clarifying question here I'm confused about the amount that's owed to fulcrum when you it's described as a pre-petition amount is that pre-chapter 11 petition

yeah so you borrowed this money after they filed for bankruptcy in Antigua or whatever liquidation yeah you call it in Antigua okay so this is a post-petition amount in Antigua for 4.2 million dollars at an interest rate of two 250% And what process, if any, did you have to go through in the Antiguan proceedings in order to get approval to enter into the pre-petition credit agreement with Falkland? Well, we sought an ex parte application to the Antiguan court. We set out, well, we set out the situation. in terms of why we were seeking this, which was that it was an imprecuniary situation because

the assets were in the US and they were held elsewhere. We also explained the fact that the negotiations would enter into and the number of firms had entered into, and we asked the court whether it was reasonable to be able to seek this funding to be able to defend against the various applications that were against, including, as I say, Blockby and Sandbanker-Free at the time. Okay, and how detailed was your description in that application to the court regarding the terms of the funding? It was detailed in that we appeared in the court the same way we do now, and we set out exactly we made submissions to the court.

We supplied an affidavit for that as well as the application, so it was detailed, yes. I guess I'm getting at, did you set out in that application the amount of the amount of funds that were being borrowed? which was $4.2 million and the interest rate that was going to... Yes. And was that approved by the Intigman court? Yes. Do you have an order that approves that? Yes.

I don't believe that's been attached to any of your declarations, for instance, not to the dip or the first day declaration. Was there a reason why it wasn't attached? I can't answer to that. I can't speak to that. At the time, it was an ex-party application because we had wanted to protect the lender in terms of that. It ended up in the private domain anyway. But no, I can't speak to why. It's not there.

The order that was obtained, approving that, was that obtained prior to the Chapter 11 petition being filed? Yes. Was that order obtained prior to the DOJ seizing the assets? No. So we had entered into a... a term sheet with the funder prior to the assets being seized. The funder had committed at that point in time, and we proceeded on to obtain the application, or rather to seek the application in front of the court and obtain the order for funding.

So was the 250% interest rate applicable, even before the DOJ seized emergence assets? We had looked at a range of, interest rates, but I can understand why Fulcrum was seeking for a two-time, 2.5 times their capital investment on the basis of the DOJ assets, the DOJ season the asset. I don't think that answered the question. The question is, I want to repeat the question. I'm not going to remember.

The question was, did the 250% interest rate, was that agreed to with Fulcrum, before the DOJ seized the assets? It was in the initial term sheet. It was because we had engaged with various other funders, and they were looking at 30% off. So the answer to the question is yes. Yes. Thank you.

Do you have any idea as to when the Intiguan appellate court may roll? I do not. Are you aware of any deadlines by which they must roll? No. How this is the last time you talked to anyone from the U.S. Department of Justice about the seized assets? I can't remember the exact date, but I'm going to suggest it was four weeks ago, when we had a call with them. And was that when they advised you that they couldn't talk to you until after Mr. Bankman-Fried was sentenced? They set out to us what was going to be the next steps, and they said that that was exactly the same conversation that they

had had with FTCX and Block 5, that they would not be engaging with the distribution of those assets until after the sentencing of Sandbank approved. Now, you also mentioned that the Intiguan Court had entered a winding up order on March 23, 2023. What does that order provide for? So that meant that the company was in full liquidation rather than provisional liquidation. So that meant that the company was considered insolvent and that it was in the interest of justice to ensure that that company was looked after by liquidators rather than by other parties,

other interested parties, and so that order was then provided. Now, in order to be declared insolvent, I'm presuming that the court looked into what the potential liabilities were of emerging? Yes. We submitted those. And what were the potential liabilities that were submitted? Well, all of the assets that are held by the DOJ. They're all up for, um, there are multiple, um, there are multiple.

interested parties that believe those assets are theirs. In any event they were received by Emergent from other parties. That Emergent had no other purpose other than to hold those shares. There were no other assets to speak off. Those assets are seized and they will be distributed accordingly. So if I have this correct then, the information that was provided to the Antigman Court was that the assets of Emergent are equal to the liabilities of Emergent. So the assets of...

That was a yes-no question, I'm sorry. Sorry, sorry, can you repeat the question? The assets of emergent equal to the liabilities. The information that you presented to the Antibran Court regarding the insolvency of Emergent, based on what you just said, did you present to the court that the assets and the liabilities of Emergent are the same?

In fact, we presented that the liabilities were more, because at that particular point in time, in time, we had received information from block fires to what they believed their claim was, and it was in excess of the current value of the assets at that point in time, because remember, those are shares and they were going up and down in terms of value. So we had to present at that point in time that block price interest in it was higher than the value of the shares currently being held. Okay.

Are you familiar with something that we do in Chapter 11 U.S. bankruptcy cases, which is get a bar date for creditors to file claims? Yes. It's my understanding that there's been no motion yet made for a bar date in this case. Is that correct? No, I think we are. No, we haven't. Okay.

So at this point in time, you do not know what the potential amount of liabilities are with respect to the Chapter 11 proceeding. No, not in detail, no, but as I described earlier, in fact, our investigations show them maybe multiple questions. It's going to be a very long time in front of poor Judge Dorsey. Answer the question, please. No. Now, you gave us a little bit of your back. out and answers to questions from council. Have you ever been involved or seen a scenario before where a lender was receiving 250% interest

on a loan? Not that degree, no, but I have seen very high percentages before. Yes, in high value. Again, we're going to be here. I'm going to ask follow questions. Don't worry. Your counsel has the right to ask you questions. So you haven't seen 250.

Have you ever seen anything over $100? percent? One hundred thirty percent. Okay. And did that also involve an insolvent entity? Yes, but also some of the litigation funding agreements, and I need to explain this, some the litigation funders agreements will have 130 percent, but they will also have two times capital deployed.

So the additional 30 percent will be on recoveries, but you will have two point five times on the capital deployed. So there are very different ways of doing litigation funding. Now you said litigation funding, correct? Yeah. And you mentioned earlier that you had looked at different type of funding that you could get for this entity. Litigation funding is a different animal than a debtor and possession loan, isn't it? Yes, it is, but this funding was for the Antiguan. Again, yes, no, okay.

Please. No. I ask the court again. Please answer the question you're asked. Your counsel will have the opportunity to follow up. Okay. It deems it necessary. Apologies, Your Honor.

And we do not have litigation funding. in this case do it we know so are you aware of any situations where the interest rate was over a hundred percent that didn't involve a litigation funding arrangement um how long have you been at is rich and durker is a good breaking point uh yes it would be your honor well don't we uh take a recess then and we convene at one o'clock uh there's The FARCAS during the break, you are not permitted to speak to anyone about your testimony, including counsel. And we will be convened at 1 p.m. Thank you. Okay. Thank you, Your Honor.

Again, for the record, Linda Richendurfer from the Office of the United States Trustee. I have a few more follow-up questions, then I want to ask about some documents real quickly. So the pre-petition loan of the $4.2 million, does that have a lien on the as a statement, that were seized by the US government? It has a lien on the assets of the company that that was, that those have been now been seeded, obviously. Okay. And when the, if the $300,000 dip is approved,

who is that going to be paid out to? That would be paid to King's Council, David Joseph. Does the debtor have any assets that are located outside of the United States? No. Now, was the pre-petition loan subject to New York law? It was subject to the governing law was, I'd have to double check that, actually. It was to New York law.

And the proposed DIP term sheet is also subject to New York law, correct? It would be an extension of that, so yes. Okay, so it's an extension of the original? Yes. Okay. Sorry, my correction, England and Wales. Sorry. So the original pre-petition loan was subject to?

to the law of England and Wales. Yeah. And the DIP loan, which is supposed to be an extension of that, is subject to New York law. To, no, an extension of this would still be England and Wales. Okay. If you turn to the DIP term sheet, I do believe, I mean, we'll get to that in a minute, but I do believe that there is a provision in there that says that it's governed by New York law, but we'll get to that.

It might, to be fair, it may have changed because we did discuss which jurisdiction should be in the But I'm looking at this document in front of me, so the definitive agreement may well be in New York. And what is the document you're looking at in front of you? The liquidation funding agreement. I'm sorry, what is it again? Liquidation funding agreement. And is that the one that was entered into pre-petition? So this is the one that was, this was executed by myself and Tony on the 2nd of February.

Your Honor, I guess I would register objection at this point in time. It was my understanding. I guess it was my call. I didn't directly ask that the witness had in front of her the exhibits that we were told were being used by the debtor today. And I don't believe that is attached to any of the exhibits. Is that one of the exhibits? No, you're right. Then you need to give a copy to counsel so she can review what she's looking at.

And is there anything else that is, I guess, concerned that there may be other things. things that are in the binder that the witness has been making over turn over the whole binder to counsel so we were not given a copy and I didn't ask for one because I thought it was just what council had identified would be used at today's hearing my bad you have a copy of the binder I do your honor ma'am first yeah so you want to take some time to review before we can take your honor I'll go through the questions I have right now I know is this the same binder that was given to the court I don't have a binder oh you don't have a binder so we were both working in the door

Yes, apparently. I think it's important that the court have it also, but I'll put that to the side right now. Young, let me just have a second. Sure. What are you in the other joint liquidator doing while you wait for the appeals court to issue with Rowland? We are continuing to administer the bankruptcy. We are seeking still to talk to Block FI and FTX, and we finalized our analysis of the production data.

that was given to us recently. And that production data was from FTX, correct? FTX and block five, that FTCS was the most use. And that data identified which of the FTCS co-debtors were the source of funds that flow through to emerging, correct? Sorry, can you repeat the question? And let me ask a different way. The data that you've referred to that you are analyzing.

Yes. Is that data that reflects? how funds found their way into emergent? Yes. Are you aware that there are others who are also conducting that same investigation in connection with the U.S. Bankruptcy Court proceeding? I have no insight into any other trustees

or any other investigative firms dealings with any data or what they may have. We only ask for that data from FTCS in order to define exactly where the funds came into emergent, which is our debtor, and that's what we ask for, and that's what we receive in the analysis. We have a duty to make sure that we understand the company.

Now you talked about exercising your business judgment. The original term sheet that you agreed to included a release of Fulcrum that extended not only to the dip loan but also to the pre-petition loan, correct? Yes, it did. That has since been the removed, correct? The release? Yes, for the pre-petition loan. I'm sorry, I'm not sure, quite sure I understand it. We'll deal with that with the court.

I do, there have been language changes agreed to the order that should have taken care of that issue. In connection with exercise of your business judgment, do you know what the usury laws are of New York? The sorry, usury. Usory laws regarding the amount of interest that can be charged per alone. So we were dealing with the Antiguan proceedings at the time. It was prior to the Chapter 11 petition, so we were not engaging. That's not my question. My question just asked you.

No, I don't. But as I would point out, we were dealing with Antiguan law at the time. Okay, but in terms of the diploma, okay, we'll get to that in the end then. Let's do the following. I'm going to ask you some questions about the monthly operating reports that were filed. I'm going to ask you about the July 31, August 31, and October 31, and I have copies of all of these for every day. If you could please first look at the monthly operating report for the period ending July 31, 2023. It is docket item 2202 filed with the bankruptcy court on August 18th, 2023.

I do note that this was signed by the other joint liquidator. Do you review these before they are filed? Ms. Shookler reviews them. She's responsible for them. but I don't review them in detail. She and I have discussions over them and she sends me. Okay. So if you turn to, well first, if we could turn to page 14 of 20,

if you look at the top, there's a header that goes across the page, and it says page 14 of 20. I'm looking at, it says part two, assets and liability status, post-petition payables. And if you could look over in that section, don't need you to read that out. loud and it makes reference there to a cross-border protocol and my question is whether or not the joint liquidators plan to move forward with the cross-border

protocol we did submit this to the US trustee and it's been with the US trustee for quite some time so we were waiting for a response on that so if you got a response from the US trustee tomorrow you would agree to enter into that and we would try to put forth a joint cross-border protocol that would cover proceedings in both jurisdictions. That was our intention to make sure that there was transparency and cooperation between both jurisdictions. So to your knowledge the the US trustee's office has not been told that the debtor will not enter into a cross-border insolvency protocol. Sorry, so the debtor has not been told...

No, I'm sorry, the US trustee has not been told to your knowledge that the debtor at this point in time is not interested in entering into a cross-border protocol. Absolutely not. We've always been interested in in a cross-border protocol. And your understanding was that you were waiting for comments from the U.S. trustees' office. What steps to your knowledge were taken in order to get those comments from the U.S. trustees' office?

Well, we engaged with legal counsel to engage with yourself, the U.S. trustee, to be able to move that forward. Do you know when those discussions first started? They were, I believe, in around June or July this year, but I might, that's from that may be wrong completely real then if we could go to page 16 of 20 so this is a balance sheet as of July 31st yes okay under assets we see the cash that was before the shares were sold correct yes and then funds retainer held by Morgan Lewis Bacchus and then it says retainer held by other professionals

professionals, $891,888.82. So which professionals hold retainers that equal that amount? So we have a retainer. We hold a retainer on trust for Forbes Hare. I'm just look at my sheet. There is a retainer that was held by Essex Court, a retainer for Lake in Kentish, and a retainer for Moran's. And to your knowledge as of today, have any of those professionals taken the retainer money into their own accounts?

No. And if the dip order is entered... No, they haven't, or no, you don't know? No, they haven't. No, they haven't. And to your knowledge, if the dip order is entered today, excuse me, let me start over here, my mouth is very dry. To your knowledge, if the dip order is entered today, will any of those professionals,

move funds from their retainer accounts into their own accounts? No, they wouldn't, on the basis of a dip motion today, no. And to your knowledge, or any, when will they? When it is approved? So, for example, when Morgan Lewis asked to buy theirs, they sought my approval, which I gave, and no other professionals have asked for that approval. So the professional that will be paid to $300,000, aren't they holding, how much were they holding a retainer? They had $291,000 on retainer, but to my knowledge they have not applied that.

That may be incorrect, but to my knowledge they have not. Okay, so we're here for dip motion for $300,000 to pay to one given professional, and they're holding around $291,000 as a retainer right now. But these are two sole practitioners who have no salaries, and they are looking, I was a yes to question ma'am. I'm sorry, we're going to be here all day, unfortunately. There was a case of the 300,000. It may well be that they have applied the 291,000 and therefore seeking an additional 300,000. Okay, so we'll get to that in a minute. So you don't know what they're doing with those funds. What I don't know for certain is whether or not they have applied those specific funds to fees already. What we have asked for is an additional 300,000,

to see them through the Court of the Peel hearing, which is in addition to the fees already incurred. Okay, so if you could leave this one open, I'm just going to ask you about one more line item. Post-petition accrued unpaid cost, 3.37 million, I'm rounding. And does that relate to the pre-petition loan, Herm Fulcrum? Sorry. It's under liabilities. Post-petition. Sorry.

Accrued unpaid cost. Yes. Or is it the line up above that says post-petition secured creditors? of 4.1? No, the post-petition accrued unpaid costs in relation to post-petition. Okay, so what makes up the $3.3 million? That would be the fees incurred to date.

By your Antiguan professionals. That would be including Morgan Lewis. And we have here, second line under liabilities, pre-petition secured creditors, 4.1 million. Yes. That's the falcon pre-petition loan. yes okay if you now could take a look at the report for the period ending

all this 31st 2023 which is docket item 2649 and I'm gonna ask you to please turn to page 17 of 21 which is the balance sheet as of August 31 2023 yes there is a new line item under liabilities which is called post petition accrued unpaid funding cost it's approximately $7.74 million what does that relate to that would be the interest the interest owed to fulcrum for the pre-petition loan right yes okay and then looking up above the second line item pre-petition secured creditors in July the amount was 4.1 and in August the amount was 4.5 million I'm rounding. What accounts for the difference? If you don't mind just a

moment. Sure. Sorry, I don't seem to see a breakdown of that within this document so that I can check for myself. Do you know why the interest owed on the pre-petitioned fulcrum loan was reported in the monthly operating report for August? And we don't see it in the July report. No, I'm not clear on that. I would have to refresh my memory and come back to you on that. And then the last monthly offering report that I gave you is the one for October. This is the last one that's been filed by the debtor. The November 1 is not due yet.

I'm looking at docket item 4018. And if we could again go to the balance sheet, which is on page 17 of 21, under assets, I see that there is now a zero or line. to the retainer funds held by MLB and I and I believe that is described elsewhere either in this report or the prior one that that was based on their fee application being approved by this court so if any of the retainer funds have been taken into income by other professionals would that also be reflected in the monthly operating report it should be yes and the amount

that is listed under liabilities the pre-petition secured creditors amount is the same and the unpaid funding cost is the same however interest has continued to accrue correct on the petition is the compound interest yes I think math was not my strong suit which is why I went to law school with interest of 250% accrues and on compound interest. In how many months does the loan double? Can I sorry, just to correct. The way that the litigation funding agreement was set out

was that it was 250% up until a certain date, which was 180 days, and then it would increase to a different amount after that. You said litigation funding agreement. The pre-petition was an asset-based funding agreement, right? It was a financing agreement. for the liquidation. For the liquidation.

And now we're talking about a financing agreement for the debtor in possession to proceed with its bankruptcy proceeding in the US, correct? OK. So in fact, that is one of the things that my co-counsel here has pointed out to me. There's several documents here that we're not. I have a question before we proceed.

What does the rate increase to after 180 days? Your Honor, it's in the folder, I will tell you that. It's in the binder. You know where it is in the binder. Yeah, I was going to suggest, if you turn to document number 14, which says term sheet dated January 13, 2023, the second page tells you what the compensation is, and it goes through the different rates and how they will increase over time. Did you find that?

Yeah. Oh, okay. realize that you had. Sorry. So the court, you said that the $250,000 was for the first 180 days, and we're beyond that right now, right? Yes, that's right. And what does it go to between 180 and 270 days?

So it would increase to... Sorry, I'm looking at the wrong document. Sorry, I am slightly confused, because the document I have in front of me has got not the date signed on it, so I'm wondering if it's the right one. Well, if you turn to the last page of the document, document that's in here as number 14 there are two signatures there and so

that's the term sheet that's the term sheet right okay sorry not the litigation well let me ask you first is that your signature on the last page here yes it is it is sorry I was looking at the wrong document okay yes this is number 14 right yes okay and so if you turn to the second page it's the term sheet what is the interest between 180 and 170 days? 275%. And then what does the interest go to between 270 and 360 days? 300%.

Okay, so February 2nd. So we're 10 months into this. So we're just about at the end of the 300% correct? Yes. And then what does the interest rate go to when it exceeds 360 days? 325% count. Your Honor, there are four documents. are four documents that are in this binder that were not introduced into evidence by debtors

counsel and I would like time at some point to review them I might have a question or two I don't want to take up time right now though unless the court refers it done that way and I also believe that they are an important part of this record or this debtor in possession one day have any other other questions other than the documents that are you done with your cross other way I do have some other questions. Okay. Why don't we finish across and I will allow you the ability to come back later? Do you have an objection to them doing redirect?

No, Your Honor. Okay. So we'll do your finish across, redirect, and then you can come back with questions about the documents that once previously provided. Because they're not long, but they're substantial in terms of going through the terms. Okay. One of the things that I do believe you also have in your binder up there, Ms. Barkhouse is your first date declaration your declaration supported debtors

chapter 11 petition yes okay and that is that was filed in the emergent case 23-10149 at docket item 3 and I had a question touched to this declaration as exhibit B is the JPL order it says I don't have that my sorry tab 13 it is it looks like it wasn't put into your binder oh top 12 okay I'm I was looking at the first day declaration which isn't in here but that's okay the order I think is the same okay it is the same document so attached to your declaration in support of the dip motion but is found at dogged item 4098 exhibit B there too is the Antigua courts joint

provisional order and I have a question there in paragraph four and specifically I'm going to ask you about paragraph four subpart D so I'll give you a minute to refresh your recollection you ready yes okay So the court order states at 4D, quote, subject to the prior approval of the court, obtain funding on commercial terms for the performance of their duties, including in connection with any legal proceedings for which funding is permitted

under the applicable law, end quote. Is this the provision under which the joint liquidators entered into the pre-petition funding agreement? So what this does is it allows us to enter into negotiations with relation to it, but we seek the sanction of the court to execute. Okay. So what was your business judgment that the pre-petition loan constituted commercial terms? Yes, and I just wanted to clarify a point.

Okay. If you want to clarify something, go ahead. I do need to clarify a point. Earlier when we were talking about what the terms were prior to the DOJ seizing the assets, I refreshed my memory. In fact, we were talking 100% and 125%. After the DOJ seized the assets, the funder therefore increased their percentage rates, and we felt that we had no option at that point to continue on those terms.

And what request your recollection on that? Just re-looking at the documents at the back of this. Yeah, you can have to walk through that again for May. I know that the judge looked like he was puzzled. I'm not understanding the point if you could just... So the question earlier is whether I'd entered into... discussions with fulcrum immediately on 250 percent the answer to that is actually no but they were on lower terms but after the DOJ cede the assets and that made the risk to the

funder much higher the pricing mechanism was altered to reflect that so the January 13th 2023 term sheet does not reflect the original terms under which fulcrum was going to provide the pre-petition loan we had entered into negotiations with fulcrum in late december We had sought funding because at that point the funds were frozen at our request and amongst others as well with the brokerage and We did not have funds to enter into the various proceedings that were going in Antigua so we needed to seek funding at that particular point again. That wasn't my question my question with all due respect was Was there a term sheet based on what you've told us a term sheet that not an executed one? Wait till she's done asking the question.

Sorry, apologies. Was there a term sheet, even if it wasn't executed, that contained in it, interest rates that were lower than those that we just went through, that were part of the January 13, 2023 term sheet? Yes, so this was the document that you don't have in your binder. So you have other documents with you that aren't even in this binder? So the document that I have in front of me,

which is at Tab 16, is a liquidation funding. agreement. Okay. I don't know if you have this. I did it until two minutes ago. Right, so it is this document that correction was executed but not dated. I don't see signatures. I see signatures. Okay. So you're telling me the document that's in here at tab 16 has interest rates in it that are different than what is in the term sheet at tab 14? Yes, but the Those were, yes, because it was such a fast-moving thing that this was prior. I think you've answered the question. I think, Your Honor, this is an area that will be better and more easily addressed by myself once I can review these documents.

I'm kidding to a point where I think I need to adjourn this hearing so that you have time to review these documents that were never produced. The witness has been reviewing them on the stand. I don't have them. This is unacceptable. So I'm going to continue this hearing until tomorrow morning at Town of California. at 10 o'clock. We'll come back then and we'll finish the cross-examination. We'll go from there. All right. We're adjourned until tomorrow morning, 10 o'clock. Thank you, Your Honor.